March , 2022
Available finance is a key to successful start-ups
22:05 pm

Kishore Kumar Biswas

Surprisingly, a few days ago while this reporter was preparing for an article on the status of start-ups in India, a junior friend called him. The caller was a successful electronic media journalist. The purpose of his call was to inform that he had left journalism during the pandemic period due to substantially reduced earnings. Instead, he ventured into the start-up ecosystem with his own start-up featuring special agro-products. Within a few months, his venture tasted success. However, it also needed continuous upgradation. The friend informed that without upgradation, the success of his start-up was in question because larger start-ups might enter the market. His present dilemma is to find investors for his start-up – so that he can scale it up. In a nutshell, this particular case represents the macro-level situation of the Indian start-up eco-system. A few years ago, the reporter attended a press meet on start-ups in Kolkata where a large number of Japanese and other foreign investors were present. Most of the investors had already invested in start-ups in Bangaluru, Mumbai and Delhi. They felt that Kolkata was lagging behind but had immense potential. Later, pressmen talked to representatives of the different business chambers. A common notion that emerged was that timely finance and business zeal of the entrepreneurs were the two basic factors that needed to be addressed to develop entrepreneurship in India or Kolkata. Some special features of the Indian start-up policy The start-up policy in India looks to transform India’s entrepreneurial ecosystem to attain mature innovation centres and support growth of the Indian economy. Secondly, it aims to lower the regional entrepreneurial discrepancies by continuous campaigning in tier 2 and tier 3 cities. Thirdly, it looks to establish centres of Fund of Funds for Start-ups ((FFS) at different regions of the country to extend financial support to start-ups.  But after several years of its implementation, it is experienced that there have been huge disparities in development of start-ups in India. The majority of entrepreneurs have concentrated in Bangaluru, Mumbai and Delhi NCR. Such lopsided development can be linked to limited fund availability all over India.  Status of financial availabilityStudies have shown that (EPW, December 11. 2021) Bangaluru, Mumbai and Delhi NCR collectively accounted for 93%of all the funding raised between 2014 and 2019.  As a result, regional imbalance in availability of funds for the purpose of initiating start-ups is huge. In another estimate it is found that since its initiation four years ago, the FFS has committed merely 31% of the total announced corpus. Therefore, disbursements of funds have been received only by a very small number of units. Estimates show that the FFS provided financial support to only 1.1% units. That is 320 out of 28, 979 of all the start-ups recognized by ‘Start-up India’ got financial support from FFS. One of the basic ideas of financial management is that easy access to capital is a crucial factor that drives entrepreneurship. This is because finance is the livelihood of every business. It is reported by a study conducted in 2018 that about 50% of entrepreneurs in India declared lack of financial support as a major strategic constraint for their business. Similarly, 41% of entrepreneurs reported that lack of funds was a hurdle for business growth. Approximately, 38% of entrepreneurs cited financial problems as the key reason for dissolving their business. (EPW, December 11, 2021).In the later part, that is, during the last decade or so, availability of venture capital funds has helped the growth of entrepreneurship. But this is concentrated in the three cities mentioned above. Additionally, the available capital has been accessed by only a few sectors like consumer tech, software, fintech and business to business (B2B) commerce and tech. About 80% of all available finance has been appropriated by these sectors. So, it is clear that access to funds from venture capital by non-technology and the so called ‘non-hot’ sectors is very limited. It is also known that the pace and quantity of fund allocation and disbursement under the ‘Start-up India’ initiative has been slow and inefficient. The Ministry of Commerce and Industry, GoI, has acknowledged this operational bottleneck (EPW, December 11 2021). Merely 29% (`913.9 crore) of the total committed amount of `3,123.20 crore had been drawn from FFS 

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